What's going on?

American paint giant PPG announced on Thursday that it had offered to acquire Dutch rival AkzoNobel for $22 billion � but was shot down! AkzoNobel�s share price jumped about 13% higher anyway.

What does this mean?

PPG said the proposed merger would have created a stronger position for the companies because of their combined geographic strength (PPG does most of its business in the Americas, while Akzo is based mainly in Europe and the Middle East) and potential cost savings (a.k.a. �synergies�). Akzo, however, argued that PPG�s offer substantially undervalued the company and that any cost savings from the merger would be lower than PPG thinks. For now, Akzo is prepared to go it alone � although PPG has hinted that it might offer to buy the company again (presumably at a higher price).

Why should I care?

For the stock: Akzo might sell one of its businesses to push up the value of the company.

Alongside rejecting PPG�s $22 billion offer, Akzo announced that it was considering a spinoff of its speciality chemicals business (e.g. the chemicals in asphalt), which could be worth more as a standalone company. And if Akzo really does believe it�s better off on its own, such a strategy could be a way to protect itself from being purchased by PPG (i.e. appeasing its current shareholders by raising the value of their stock through this sale, rather than having them benefit from the payout of a takeover).

The bigger picture: There might be fewer mergers and acquisitions if interest rates go up.

There has been lots of M&A among industrial companies in recent years (e.g. Dow Chemical and Dupont as well as Linde and Praxair). One reason is that interest rates have been at exceptionally low levels, which makes it easier for a company to borrow the money needed to acquire a rival. Interest rates have already moved up somewhat and, according to some, have room to move significantly higher. If that happens, it could put a damper on all the M&A action we�ve been seeing.